Reprinted with Permission from AccountingWEB.com

Senate Tackles "Son of Boss" Tax Shelter

AccountingWeb.com
July 22, 2004

Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, and ranking member Max Baucus, D-Mont., on July 23 announced plans to extend the August 15 statute of limitations for so-called "Son of Boss" anti-tax shelter legislation in order to rein in investors who did not participate in the IRS's voluntary settlement program. In addition, the lawmakers plan to revise the interest suspension rules for Son of Boss investors and other tax shelter investors.

"The IRS gave Son of Boss participants a chance to come forward voluntarily," Grassley said. "A large of number of them didn't come forward." According to Baucus, their intent was to give the IRS adequate time to pursue those who rejected the terms of the voluntary settlement program.

In Notice 99-59, I.R.B. 1999-52, 761, the IRS and the Treasury Department described a transaction that was being marketed to taxpayers for the purpose of generating artificial tax losses. This transaction was known as the "bond option sales strategy "or the"BOSS" transaction. Tax shelter promoters modified the BOSS structure to fall outside the variations described in Notice 99-59. The promoters marketed a revised scheme, known as "Son of Boss," which generated artificial tax losses designed to offset income from other transactions through a series of contrived steps involving interests in a partnership.

In response, the Treasury issued Notice 2000-44, 2000-2 C.B. 255, that would deny taxpayers the purported losses resulting from the "Son of Boss "transaction. The notice also warned taxpayers and promoters who participate in these transactions that they may be subject to criminal penalties if they willfully conceal their participation on tax returns.

The House and Senate versions of the bill to repeal the foreign sales corporation/extraterritorial tax bill (the American Jobs Creation Bill of 2004 (HR 4520) and the Jumpstart Our Business Strength (JOBS) Bill of 2004 (Sen 1637), respectively), contain a measure that would hold open the statute of limitations on a transaction listed by the Treasury Department as a tax shelter, such as the" Son of Boss" transaction, but this measure only applies to tax years that are open to audit after the ETI repeal bill is enacted.

Because of a provision enacted as part of the IRS Restructuring and Reform Act of 1998 (P.L. 105-206), the accrual of interest on most "Son of Boss" cases was suspended. The Senate version of the ETI repeal bill contains a provision that would turn off the interest suspension in the case of listed tax shelter transactions, but this change would be effective after May 5, 2004.

Accordingly, Baucus and Grassley also plan to modify the effective date to repeal the interest suspension rule for transactions that are listed as of the date of enactment of the legislation, but will continue to allow suspension for taxpayers that turn themselves in under the voluntary disclosure programs.

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